New Preferential Procurement Regulations were published on 20 January 2017 and will come into effect on 1 April 2017, replacing the current Preferential Procurement Regulations published in 2011 and holding a number of significant changes for tenderers.

The 80/20 preference point system will apply to tenders with a contract value equal to or above R30,000.00 up to R50 million. Tenders with a contract value of up to R50 million will accordingly be evaluated by allocating 80 points towards the pricing of goods and services and 20 points towards the B-BBEE status level of the tenderer. The 90/10 principle will apply to tenders with a contract value exceeding R50 million, with 90 points awarded for pricing and 10 points for the B-BBEE status level of the tenderer.

Pre-qualification criteria

As from 1 April 2017 an organ of state will be able to include certain pre-qualification criteria in a tender in order to advance or preference the following designated groups:

• A tenderer with a stipulated minimum B-BBEE status level;
• A tenderer qualifying as an EME (annual turnover below R10 million) or QSE (annual turnover below R50 million);
• A tenderer subcontracting a minimum of 30% of the tender to EME’s and QSE’s, or EME’s and QSE’s that are at least 51% owned by black people / black woman / black youth / black people with disabilities / black people living in rural areas / black people who are military veterans; or
• Cooperatives which are at least 51% owned by black people.

A tenderer failing to meet the pre-qualification criteria as specified in the tender advertisement will then be deemed an unacceptable tender and may be disqualified.

In the case of certain designated sectors, an organ of state may be required to only consider locally produced or manufactured goods which meet the stipulated minimum threshold for local production. This requirement may however also be included in the case of non-designated sectors, but such a specific condition will need to be specified in the tender advertisement.

Subcontracting to small enterprises

Organs of state will be required as of 1 April 2017 to apply subcontracting to all tenders above a contract value of R30 million, if feasible to do so. A minimum of 30% of the contract value will have to be subcontracted to one or more of the following designated groups:

• EME’s or QSE’s;
• EME’s or QSE’s that are at least 51% owned by black people / black woman / black youth / black people
with disabilities / black people living in rural areas / black people who are military veterans;
• Cooperatives which are at least 51% owned by black people.

The tenderer will furthermore have to select the sub-contractor from a list of approved and registered suppliers, to provide the required goods or services.

The new regulations specifically mention that sworn affidavits as prescribed by the B-BBEE Codes of Good Practice are sufficient as proof of the B-BBEE status level of a tenderer. EME’s and 51% black owned QSE’s, automatically qualifying for certain B-BBEE levels by way of a sworn affidavit, and whom have previously struggled with the acceptance of their BEE affidavits will find this provision of benefit to them.

The changes contained in the new regulations make it clear that the B-BBEE status level of a tenderer will play a very important role in the tender process. Businesses reliant on government tenders should carefully review the new procurement regulations to prepare themselves for compliance as well as mentally prepare themselves for a period of implementation issues as organs of state come to grips with the practical aspect of these new regulations.

This article was first published in Phatshoane Henney Attorneys March 2017 newsletter